Statement of Cash Flows

Cash Flow Statement Flow statementPeriodicProvides information regarding the liquidity of a firmexplains the reasons for increase or decrease in cash balance from one balance sheet date to the nextclassifies the reasons for the change as an operating, investing or financing activity.amount of net income in a period is usually different than the amount of increase in cash in the same periodreconciles net income with cash flow from operations.

Classification of Cash Flows Operations -- cash flows related to selling goods and services; that is, the principle business of the firm.Investing -- cash flows related to the acquisition or sale of noncurrent assets.Financing -- long term and short term cash flows related to liabilities and owners equity; dividends are a financing cash outflow.

What is Cash?Cash includes cash and cash equivalentsCash equivalents: treasury bills maturing in 90 days or less; investment funds; foreign currency on hand; checking account and free savings account

External Uses of CFSTo assess the ability of a firm to manage cash flowsTo assess the ability of a firm to generate cash through its operationsTo assess the companys ability to meet its obligations and its dividend policyTo provide information about the effectiveness of the firm to convert its revenues to cashTo provide information to estimate or anticipate the companys need for additional financing

Internal Uses of CFSAlong side with cash budget CFS is used:To assess liquidityDetermine if short-term financing is necessary To determine dividend policyDecide to distribute; or increase or decrease To evaluate the investment and financing decisions

Cash flow from operating activitiesExamples (IAS No.7):cash received from customers through sale of goods or services performed;cash received from non-operating activities such as dividends from investments, interest revenue, commissions, and fees;cash payments to suppliers or employees;cash payments for taxes and other expenses;In effect, the income statement is changed from accrual basis to cash basis

Investing ActivitiesExamples of investing activities include:cash payments to acquire property, plant, and equipment (PPE), other tangible or intangible assets, and other long-term assets; and sale of such assetsloans extended to other companies; and collection of such loans;

Financing ActivitiesExamples of financing activities are :cash received from issuing share capital;cash proceeds from issuing bonds, loans, notes, mortgages and other short or long-term borrowings;cash repayment of loans and other borrowings; andcash payments to shareholders as dividends.

Classification of Cash in-flows and outflowsFrom sales of goods and services to customersFrom receipt of customer advancesFrom receipt of interest revenue or dividends or rent revenue or similar revenue itemsOperating ActivitiesTo wages salary paymentsTo suppliers for purchases of inventoriesTo other operating expensesTo interest paymentsTo tax paymentsTo advance payments to suppliersFrom sale of PPE and other long-term assetsFrom collection of loansInvesting ActivitiesTo purchase PPE and other long-term assetsTo make loans and to collect such loansFrom sale of common or preferred stockFrom issuance of short or long term debtFinancing ActivitiesTo repay debtTo pay dividends

Format of the Cash Flow StatementName of the CompanyCash Flow StatementFor the period

Cash from operating activities ACash from investing activitiesBCash from financing activities CNet Change in Cash D = (A+B+C) increase or (decrease)+ Beginning Cash balanceCB, from the beginning balance sheet Ending Cash balance =CB + D should equal to ending cash balance in the ending balance sheetNon-cash Investing and Financing Activities

Determination of Cash Flows From Operating ActivitiesDirect MethodIncome Statement items are converted to cash flows individually

Indirect Method Net income or loss is adjusted for accruals such as accounts receivable and payable, and for non-cash expenses such as depreciation reconciliation of the accrual based and cash based accounting

Comparison of MethodsDirect method of presentation calculates cash flow from operations by subtracting cash disbursements to supplies, employees, and others from cash receipts from customers.The indirect method calculates cash flow from operations by adjusting net income for non-cash revenues and expenses.Most firms present their cash flows using the indirect method.Only operating activities section is different between the methods, investing and financing sections are the same.

How to prepare cash flow statementFirms could prepare their own cash flow statement directly from the cash account.however, we need two consecutive balance sheets and the income statement that covers the period between the two balance sheets

Algebraic Formulation*Assets = Liabilities + Shareholders Equityor A = L + SHEAssets are either cash (C) or not (Non-Cash) Thus reorganizing C + Non Cash Assets (NCA) = L + SE C + NCA = L + SEWhere means the change in the balance of the item from the previous period.Solving for change in cash: C = L + SE - NCA Based on Stickney and Weil, 10th ed. Financial Accounting Slides http://www.swlearning.com/accounting/stickney/tenth_edition/stickney.html

Algebraic Formulation (Cont.) C = L + SE - NCA

The change in cash, C, is the increase or decrease in the cash account.This amount must equal changes in liabilities plus changes in shareholders equity minus changes in assets other than cash.Thus, we can identify the causes in the change in the cash account by studying the changes in non-cash accounts.

Indirect Method cash flow from operationsAdjusting Net Income of the period (accrual) to cash basis income

Indirect Method- operating activities- Adjustments to net incomeNet income+ noncash expenses: depreciation, amortization, uncollectible account expense,etc+ loss on sale of asset+ increases in current liabilities+ decreases in current assets- gain on sale of asset- decrease in current liabilitiesincrease in current assets= Cashflow from operating activities

Noncash ExpensesNoncash expenses, such as depreciation expense, are added back because they were deducted to measure net income but did not require any cash payment in the current period They are not truly sources of cash, even though they are associated with cash inflows but reversal of an accrued expense

Sheet1

Portakal Company

Prepare Cash Flow StatementCash Flow Statement

Accounts with Debit Balances20082007increase (decrease)Cashflow from Operating Activities

Cash37,50039,250(1,750)Net Income74000

Notes Receivable (from loans to other companies)69,00050,00019,000Add back noncash:

Accounts Receivable53,70039,90013,800Depreciation Expense43,000

Merchandise Inventory158,000120,00038,000Loss on Sale of Equipment4,000

Prepaid Operating Expenses2,1001,800300121,000

Interest Receivable1,400600800adjustments that increase cash:

Land110,00065,00045,000increase in Acct.Payable7,000

Property,Plant and Equipment-PPE-net377,000380,000(3,000)Increase in Acc.Wages Payable600

808,700696,550112,150increase in Income Taxes payable1,500

increase in unearned revenued1,250

Accounts with Credit Balances10,350

Accounts Payable45,00038,0007,000adjustments that decrease cash:

Accrued Wages Payable3,0002,400600increase in Accts Rec.(13,800)

Income Taxes Payable6,0004,5001,500increase in Merch. Inv.(38,000)

Unearned Revenues2,5001,2501,250Increase in Prepaid Expense(300)

Bank Notes Payable - long term215,000200,00015,000increase in interest recev.(800)

Common Stock; TL 15 par value405,000375,00030,000(52,900)

Additional Paid in Capital70,00050,00020,000

Retained Earnings62,20025,40036,800Cashflow from operations78,450

808,700696,550112,150

000Cashflow from investing

Income Statement2008Sale of PPE (note will be received in 2009)

Purchase of PPE(44,000)

Sales Revenue750,000Loans extended( to other companies)(19,000)

Cost of Goods Sold(375,000)Purchase of land(45,000)

Depreciation Expense(43,000)Cashflow from investing(108,000)

Salary and Wages Expense(125,000)

Administrative Expenses(80,000)Cashflow from financing

Loss on Sale of Equipment(4,000)Bank Notes Payable - long term65,000

Other Operating Expenses(5,000)Common Stock; TL 15 par value30,000

Interest Revenue4,000Additional Paid in Capital20,000

Interest Expense(20,000)Payment of Bank loan(50,000)

Income Tax Expense(28,000)Payment of Dividends(37,200)

Net Income74,000Cashflow from financing27,800

Net Change in Cash(1,750)

The company paid TL 50.000 of Bank Notes and borrowed new bank loan.

The company declared and paid cash dividends.

The company sold equipment with a cost of TL 12000 and accumulated depreciation of TL 6000 for TL 2000 receving a note in return to be collected in 2009.

The company purchased equipment for TL 46.000; paid TL 44.000 in 2008 and gave a note for Jan. 2009.Dividends:

The company issued common stock during the year .Net Income74,000

less increase in Ret.Earnings(36,800)

Dividends Declared and paid37,200

Sheet2

Sheet3

Sheet1

Portakal Company

Prepare Cash Flow StatementCash Flow Statement

Accounts with Debit Balances20082007increase (decrease)Cashflow from Operating Activities

Cash37,50039,250(1,750)Net Income74000

Notes Receivable (from loans to other companies)69,00050,00019,000Add back noncash:

Accounts Receivable53,70039,90013,800Depreciation Expense43,000

Merchandise Inventory158,000120,00038,000Loss on Sale of Equipment4,000

Prepaid Operating Expenses2,1001,800300121,000

Interest Receivable1,400600800adjustments that increase cash:

Land110,00065,00045,000increase in Acct.Payable7,000

Property,Plant and Equipment-PPE-net377,000380,000(3,000)Increase in Acc.Wages Payable600

808,700696,550112,150increase in Income Taxes payable1,500

increase in unearned revenued1,250

Accounts with Credit Balances10,350

Accounts Payable45,00038,0007,000adjustments that decrease cash:

Accrued Wages Payable3,0002,400600increase in Accts Rec.(13,800)

Income Taxes Payable6,0004,5001,500increase in Merch. Inv.(38,000)

Unearned Revenues2,5001,2501,250Increase in Prepaid Expense(300)

Bank Notes Payable - long term215,000200,00015,000increase in interest recev.(800)

Common Stock; TL 15 par value405,000375,00030,000(52,900)

Additional Paid in Capital70,00050,00020,000

Retained Earnings62,20025,40036,800Cashflow from operations78,450

808,700696,550112,150

Portakal Company000Cashflow from investing

Income Statement2008Sale of PPE (note will be received in 2009)

Purchase of PPE(44,000)

Sales Revenue750,000Loans extended( to other companies)(19,000)

Cost of Goods Sold(375,000)Purchase of land(45,000)

Depreciation Expense(43,000)Cashflow from investing(108,000)

Salary and Wages Expense(125,000)

Administrative Expenses(80,000)Cashflow from financing

Loss on Sale of Equipment(4,000)Bank Notes Payable - long term65,000

Other Operating Expenses(5,000)Common Stock; TL 15 par value30,000

Interest Revenue4,000Additional Paid in Capital20,000

Interest Expense(20,000)Payment of Bank loan(50,000)

Income Tax Expense(28,000)Payment of Dividends(37,200)

Net Income74,000Cashflow from financing27,800

Net Change in Cash(1,750)

The company paid TL 50.000 of Bank Notes and borrowed new bank loan.

The company declared and paid cash dividends.

The company sold equipment with a cost of TL 12000 and accumulated depreciation of TL 6000 for TL 2000 receving a note in return to be collected in 2009.

The company purchased equipment for TL 46.000; paid TL 44.000 in 2008 and gave a note for Jan. 2009.Dividends:

The company issued common stock during the year .Net Income74,000

less increase in Ret.Earnings(36,800)

Dividends Declared and paid37,200

Sheet2

Sheet3

Sheet1

Portakal Company

Prepare Cash Flow StatementCash Flow Statement

Accounts with Debit Balances20082007increase (decrease)Cashflow from Operating Activities

Cash37,50039,250(1,750)Net Income74000

Notes Receivable (from loans to other companies)69,00050,00019,000Add back noncash:

Accounts Receivable53,70039,90013,800Depreciation Expense43,000

Merchandise Inventory158,000120,00038,000Loss on Sale of Equipment4,000

Prepaid Operating Expenses2,1001,800300121,000

Interest Receivable1,400600800adjustments that increase cash:

Land110,00065,00045,000increase in Acct.Payable7,000

Property,Plant and Equipment-PPE-net377,000380,000(3,000)Increase in Acc.Wages Payable600

808,700696,550112,150increase in Income Taxes payable1,500

increase in unearned revenued1,250

Accounts with Credit Balances10,350

Accounts Payable45,00038,0007,000adjustments that decrease cash:

Accrued Wages Payable3,0002,400600increase in Accts Rec.(13,800)

Income Taxes Payable6,0004,5001,500increase in Merch. Inv.(38,000)

Unearned Revenues2,5001,2501,250Increase in Prepaid Expense(300)

Bank Notes Payable - long term215,000200,00015,000increase in interest recev.(800)

Common Stock; TL 15 par value405,000375,00030,000(52,900)

Additional Paid in Capital70,00050,00020,000

Retained Earnings62,20025,40036,800Cashflow from operations78,450

808,700696,550112,150

000Cashflow from investing

Income Statement2008Sale of PPE (note will be received in 2009)

Purchase of PPE(44,000)

Sales Revenue750,000Loans extended( to other companies)(19,000)

Cost of Goods Sold(375,000)Purchase of land(45,000)

Depreciation Expense(43,000)Cashflow from investing(108,000)

Salary and Wages Expense(125,000)

Administrative Expenses(80,000)Cashflow from financing

Loss on Sale of Equipment(4,000)Bank Notes Payable - long term65,000

Other Operating Expenses(5,000)Common Stock; TL 15 par value30,000

Interest Revenue4,000Additional Paid in Capital20,000

Interest Expense(20,000)Payment of Bank loan(50,000)

Income Tax Expense(28,000)Payment of Dividends(37,200)

Net Income74,000Cashflow from financing27,800

Net Change in Cash(1,750)

The company paid TL 50.000 of Bank Notes and borrowed new bank loan.

The company declared and paid cash dividends.

The company sold equipment with a cost of TL 12000 and accumulated depreciation of TL 6000 for TL 2000 receving a note in return to be collected in 2009.

The company purchased equipment for TL 46.000; paid TL 44.000 in 2008 and gave a note for Jan. 2009.Dividends:

The company issued common stock during the year .Net Income74,000

less increase in Ret.Earnings(36,800)

Dividends Declared and paid37,200

Sheet2

Sheet3

Sheet1

Portakal CompanyPortakal Company2008

Prepare Cash Flow StatementCash Flow Statement

Accounts with Debit Balances20082007increase (decrease)Cashflow from Operating Activities

Cash37,50039,250(1,750)Net Income74000

Notes Receivable (from loans to other companies)69,00050,00019,000Add back noncash:

Accounts Receivable53,70039,90013,800Depreciation Expense43,000

Merchandise Inventory158,000120,00038,000Loss on Sale of Equipment4,000

Prepaid Operating Expenses2,1001,800300121,000

Interest Receivable1,400600800adjustments that increase cash:

Land110,00065,00045,000increase in Acct.Payable7,000

Property,Plant and Equipment-PPE-net377,000380,000(3,000)Increase in Acc.Wages Payable600

808,700696,550112,150increase in Income Taxes payable1,500

increase in unearned revenued1,250

Accounts with Credit Balances10,350

Accounts Payable45,00038,0007,000adjustments that decrease cash:

Accrued Wages Payable3,0002,400600increase in Accts Rec.(13,800)

Income Taxes Payable6,0004,5001,500increase in Merch. Inv.(38,000)

Unearned Revenues2,5001,2501,250Increase in Prepaid Expense(300)

Bank Notes Payable - long term215,000200,00015,000increase in interest recev.(800)

Common Stock; TL 15 par value405,000375,00030,000(52,900)

Additional Paid in Capital70,00050,00020,000

Retained Earnings62,20025,40036,800Cashflow from operations78,450

808,700696,550112,150

000Cashflow from investing

Income Statement2008Sale of PPE (note will be received in 2009)

Purchase of PPE(44,000)

Sales Revenue750,000Loans extended( to other companies)(19,000)

Cost of Goods Sold(375,000)Purchase of land(45,000)

Depreciation Expense(43,000)Cashflow from investing(108,000)

Salary and Wages Expense(125,000)

Administrative Expenses(80,000)Cashflow from financing

Loss on Sale of Equipment(4,000)Bank Notes Payable - long term65,000

Other Operating Expenses(5,000)Common Stock; TL 15 par value30,000

Interest Revenue4,000Additional Paid in Capital20,000

Interest Expense(20,000)Payment of Bank loan(50,000)

Income Tax Expense(28,000)Payment of Dividends(37,200)

Net Income74,000Cashflow from financing27,800

Net Change in Cash(1,750)

The company paid TL 50.000 of Bank Notes and borrowed new bank loan.

The company declared and paid cash dividends.

The company sold equipment with a cost of TL 12000 and accumulated depreciation of TL 6000 for TL 2000 receving a note in return to be collected in 2009.

The company purchased equipment for TL 46.000; paid TL 44.000 in 2008 and gave a note for Jan. 2009.Dividends:

The company issued common stock during the year .Net Income74,000

less increase in Ret.Earnings(36,800)

Dividends Declared and paid37,200

Sheet2

Sheet3

Sheet1

Portakal CompanyPortakal Company2008

Prepare Cash Flow StatementCash Flow Statement

Accounts with Debit Balances20082007increase (decrease)Cashflow from Operating Activities

Cash37,50039,250(1,750)Net Income74000

Notes Receivable (from loans to other companies)69,00050,00019,000Add back noncash:

Accounts Receivable53,70039,90013,800Depreciation Expense43,000

Merchandise Inventory158,000120,00038,000Loss on Sale of Equipment4,000

Prepaid Operating Expenses2,1001,800300121,000

Interest Receivable1,400600800adjustments that increase cash:

Land110,00065,00045,000increase in Acct.Payable7,000

Property,Plant and Equipment-PPE-net377,000380,000(3,000)Increase in Acc.Wages Payable600

808,700696,550112,150increase in Income Taxes payable1,500

increase in unearned revenued1,250

Accounts with Credit Balances10,350

Accounts Payable45,00038,0007,000adjustments that decrease cash:

Accrued Wages Payable3,0002,400600increase in Accts Rec.(13,800)

Income Taxes Payable6,0004,5001,500increase in Merch. Inv.(38,000)

Unearned Revenues2,5001,2501,250Increase in Prepaid Expense(300)

Bank Notes Payable - long term215,000200,00015,000increase in interest recev.(800)

Common Stock; TL 15 par value405,000375,00030,000(52,900)

Additional Paid in Capital70,00050,00020,000

Retained Earnings62,20025,40036,800Cashflow from operations78,450

808,700696,550112,150

000Cashflow from investing

Income Statement2008Sale of PPE (note will be received in 2009)

Purchase of PPE(44,000)

Sales Revenue750,000Loans extended( to other companies)(19,000)

Cost of Goods Sold(375,000)Purchase of land(45,000)

Depreciation Expense(43,000)Cashflow from investing(108,000)

Salary and Wages Expense(125,000)

Administrative Expenses(80,000)Cashflow from financing

Loss on Sale of Equipment(4,000)Bank Notes Payable - long term65,000

Other Operating Expenses(5,000)Common Stock; TL 15 par value30,000

Interest Revenue4,000Additional Paid in Capital20,000

Interest Expense(20,000)Payment of Bank loan(50,000)

Income Tax Expense(28,000)Payment of Dividends(37,200)

Net Income74,000Cashflow from financing27,800

Net Change in Cash(1,750)

The company paid TL 50.000 of Bank Notes and borrowed new bank loan.

The company declared and paid cash dividends.

The company sold equipment with a cost of TL 12000 and accumulated depreciation of TL 6000 for TL 2000 receving a note in return to be collected in 2009.

The company purchased equipment for TL 46.000; paid TL 44.000 in 2008 and gave a note for Jan. 2009.Dividends:

The company issued common stock during the year .Net Income74,000

less increase in Ret.Earnings(36,800)

Dividends Declared and paid37,200

Sheet2

Sheet3

Sheet1

Portakal CompanyPortakal Company2008

Prepare Cash Flow StatementCash Flow Statement

Accounts with Debit Balances20082007increase (decrease)Cashflow from Operating Activities

Cash37,50039,250(1,750)Net Income74000

Notes Receivable (from loans to other companies)69,00050,00019,000Add back noncash:

Accounts Receivable53,70039,90013,800Depreciation Expense43,000

Merchandise Inventory158,000120,00038,000Loss on Sale of Equipment4,000

Prepaid Operating Expenses2,1001,800300121,000

Interest Receivable1,400600800adjustments that increase cash:

Land110,00065,00045,000increase in Acct.Payable7,000

Property,Plant and Equipment-PPE-net377,000380,000(3,000)Increase in Acc.Wages Payable600

808,700696,550112,150increase in Income Taxes payable1,500

increase in unearned revenued1,250

Accounts with Credit Balances10,350

Accounts Payable45,00038,0007,000adjustments that decrease cash:

Accrued Wages Payable3,0002,400600increase in Accts Rec.(13,800)

Income Taxes Payable6,0004,5001,500increase in Merch. Inv.(38,000)

Unearned Revenues2,5001,2501,250Increase in Prepaid Expense(300)

Bank Notes Payable - long term215,000200,00015,000increase in interest recev.(800)

Common Stock; TL 15 par value405,000375,00030,000(52,900)

Additional Paid in Capital70,00050,00020,000

Retained Earnings62,20025,40036,800Cashflow from operations78,450

808,700696,550112,150

000Cashflow from investing

Income Statement2008Sale of PPE (note will be received in 2009)

Purchase of PPE(44,000)

Sales Revenue750,000Loans extended( to other companies)(19,000)

Cost of Goods Sold(375,000)Purchase of land(45,000)

Depreciation Expense(43,000)Cashflow from investing(108,000)

Salary and Wages Expense(125,000)

Administrative Expenses(80,000)Cashflow from financing

Loss on Sale of Equipment(4,000)Bank Notes Payable - long term65,000

Other Operating Expenses(5,000)Common Stock; TL 15 par value30,000

Interest Revenue4,000Additional Paid in Capital20,000

Interest Expense(20,000)Payment of Bank loan(50,000)

Income Tax Expense(28,000)Payment of Dividends(37,200)

Net Income74,000Cashflow from financing27,800

Net Change in Cash(1,750)

The company paid TL 50.000 of Bank Notes and borrowed new bank loan.

The company declared and paid cash dividends.

The company sold equipment with a cost of TL 12000 and accumulated depreciation of TL 6000 for TL 2000 receving a note in return to be collected in 2009.

The company purchased equipment for TL 46.000; paid TL 44.000 in 2008 and gave a note for Jan. 2009.Dividends:

The company issued common stock during the year .Net Income74,000

less increase in Ret.Earnings(36,800)

Dividends Declared and paid37,200

Sheet2

Sheet3

Sheet1

Portakal CompanyPortakal Company2008

Prepare Cash Flow StatementCash Flow Statement

Accounts with Debit Balances20082007increase (decrease)Cashflow from Operating Activities

Cash37,50039,250(1,750)Net Income74000

Notes Receivable (from loans to other companies)69,00050,00019,000Add back noncash:

Accounts Receivable53,70039,90013,800Depreciation Expense43,000

Merchandise Inventory158,000120,00038,000Loss on Sale of Equipment4,000

Prepaid Operating Expenses2,1001,800300121,000

Interest Receivable1,400600800adjustments that increase cash:

Land110,00065,00045,000increase in Acct.Payable7,000

Property,Plant and Equipment-PPE-net377,000380,000(3,000)Increase in Acc.Wages Payable600

808,700696,550112,150increase in Income Taxes payable1,500

increase in unearned revenued1,250

Accounts with Credit Balances10,350

Accounts Payable45,00038,0007,000adjustments that decrease cash:

Accrued Wages Payable3,0002,400600increase in Accts Rec.(13,800)

Income Taxes Payable6,0004,5001,500increase in Merch. Inv.(38,000)

Unearned Revenues2,5001,2501,250Increase in Prepaid Expense(300)

Bank Notes Payable - long term215,000200,00015,000increase in interest recev.(800)

Common Stock; TL 15 par value405,000375,00030,000(52,900)

Additional Paid in Capital70,00050,00020,000

Retained Earnings62,20025,40036,800Cashflow from operations78,450

808,700696,550112,150

000Cashflow from investing

Income Statement2008Sale of PPE (note will be received in 2009)

Purchase of PPE(44,000)

Sales Revenue750,000Loans extended( to other companies)(19,000)

Cost of Goods Sold(375,000)Purchase of land(45,000)

Depreciation Expense(43,000)Cashflow from investing(108,000)

Salary and Wages Expense(125,000)

Administrative Expenses(80,000)Cashflow from financing

Loss on Sale of Equipment(4,000)Bank Notes Payable - long term65,000

Other Operating Expenses(5,000)Common Stock; TL 15 par value30,000

Interest Revenue4,000Additional Paid in Capital20,000

Interest Expense(20,000)Payment of Bank loan(50,000)

Income Tax Expense(28,000)Payment of Dividends(37,200)

Net Income74,000Cashflow from financing27,800

Net Change in Cash(1,750)

The company paid TL 50.000 of Bank Notes and borrowed new bank loan.

The company declared and paid cash dividends.

The company sold equipment with a cost of TL 12000 and accumulated depreciation of TL 6000 for TL 2000 receving a note in return to be collected in 2009.

The company purchased equipment for TL 46.000; paid TL 44.000 in 2008 and gave a note for Jan. 2009.Dividends:

The company issued common stock during the year .Net Income74,000

less increase in Ret.Earnings(36,800)

Dividends Declared and paid37,200

Sheet2

Sheet3

Sheet1

Portakal CompanyPortakal Company2008

Prepare Cash Flow StatementCash Flow Statement

Accounts with Debit Balances20082007increase (decrease)Cashflow from Operating Activities

Cash37,50039,250(1,750)Net Income74000

Notes Receivable (from loans to other companies)69,00050,00019,000Add back noncash:

Accounts Receivable53,70039,90013,800Depreciation Expense43,000

Merchandise Inventory158,000120,00038,000Loss on Sale of Equipment4,000

Prepaid Operating Expenses2,1001,800300121,000

Interest Receivable1,400600800adjustments that increase cash:

Land110,00065,00045,000increase in Acct.Payable7,000

Property,Plant and Equipment-PPE-net377,000380,000(3,000)Increase in Acc.Wages Payable600

808,700696,550112,150increase in Income Taxes payable1,500

increase in unearned revenued1,250

Accounts with Credit Balances10,350

Accounts Payable45,00038,0007,000adjustments that decrease cash:

Accrued Wages Payable3,0002,400600increase in Accts Rec.(13,800)

Income Taxes Payable6,0004,5001,500increase in Merch. Inv.(38,000)

Unearned Revenues2,5001,2501,250Increase in Prepaid Expense(300)

Bank Notes Payable - long term215,000200,00015,000increase in interest recev.(800)

Common Stock; TL 15 par value405,000375,00030,000(52,900)

Additional Paid in Capital70,00050,00020,000

Retained Earnings62,20025,40036,800Cashflow from operations78,450

808,700696,550112,150

000Cashflow from investing

Income Statement2008Sale of PPE (note will be received in 2009)

Purchase of PPE(44,000)

Sales Revenue750,000Loans extended( to other companies)(19,000)

Cost of Goods Sold(375,000)Purchase of land(45,000)

Depreciation Expense(43,000)Cashflow from investing(108,000)

Salary and Wages Expense(125,000)

Administrative Expenses(80,000)Cashflow from financing

Loss on Sale of Equipment(4,000)Bank Notes Payable - long term65,000

Other Operating Expenses(5,000)Common Stock; TL 15 par value30,000

Interest Revenue4,000Additional Paid in Capital20,000

Interest Expense(20,000)Payment of Bank loan(50,000)

Income Tax Expense(28,000)Payment of Dividends(37,200)

Net Income74,000Cashflow from financing27,800

Net Change in Cash(1,750)

The company paid TL 50.000 of Bank Notes and borrowed new bank loan.

The company declared and paid cash dividends.

The company sold equipment with a cost of TL 12000 and accumulated depreciation of TL 6000 for TL 2000 receving a note in return to be collected in 2009.

The company purchased equipment for TL 46.000; paid TL 44.000 in 2008 and gave a note for Jan. 2009.Dividends:

The company issued common stock during the year .Net Income74,000

less increase in Ret.Earnings(36,800)

Dividends Declared and paid37,200

Sheet2

Sheet3

Effects of a Sale of a Long-Term Assets on Cash FlowsA few transactions complicate the derivation of a cash flow statement from a comparative balance sheet, for example, the sale of a long-term (or fixed) asset.Recall the journal entry for the sale of an asset:Cash nnnnAccumulated Depreciation nnnn Asset nnnn Gain (or loss) on sale nnnn

Sale of an AssetEach of the four parts of the above journal entry require an adjustment in the cash flow statement.The first line, cash, adds a line to the investing section.The second line, a debit to accumulated depreciation, increases the depreciation expense above the change in the change in the accumulated depreciation account.The third line, a credit to the asset, increases the amount of cash invested in long-lived assets above the change in the fixed asset accounts.The fourth line, a gain or loss, is reversed out in the operating sections since this is not a cash flow.

Comparison of Cash Flow to Net IncomeNet income is an accrual based concept and purports to show the long-term.Cash flows purport to show the short term.Consider the outlook for both short-term and long-term and consider that each is either good or poor.A strong growing firm would show both good long-term and good short-term outlooks.A failing firm would show both poor long-term and poor short term outlooks.What about a firm with good cash flows (short-term) but poor net income (long-term)?What about a firm with poor cash flows (short-term) but good net income (long-term)?